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Weekly investment update – Transitory or persistent?

Stronger inflation data in the US again fuels the ‘transitory-versus-persistent’ debate on the fundamental nature of inflationary pressures. It is a discussion that has further to run. Although as fickle as ever, bond markets seem to be adhering to…

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Stronger inflation data in the US again fuels the ‘transitory-versus-persistent’ debate on the fundamental nature of inflationary pressures. It is a discussion that has further to run. Although as fickle as ever, bond markets seem to be adhering to the ‘transitory’ school of thought.

Covid-19 – Further headwinds

New cases have continued to climb around the world and are now at 440 000 per day, up from 390 000 last week. A rise in cases in Asia, Europe, and North America has offset a decline in South America over the past week.  In the UK, where the Covid situation is considered to be 8-12 weeks ahead of continental Europe, new cases have accelerated to above 30 000 per day.

For advanced economies with better vaccine coverage, the consensus view for the moment appears to be that the spread of the Delta variant will not translate into renewed lockdowns. This analysis is supported by the still low hospitalisation rates. A more significant risk is arguably that rising case numbers dampen consumer confidence and delay the recovery in household spending.

In the US, a voting member of the rate-setting Federal Open Markets Committee warned last week that the spread of the Delta variant and low vaccination rates in some parts of the world threatened the global recovery. Mary Daly urged caution in removing monetary support for the US economy and suggested one of the biggest risks to global growth was a premature declaration of victory over Covid. The president of the Federal Reserve Bank of San Francisco went on to warn that if the global economy cannot boost vaccination rates to overcome Covid rapidly, US growth faced a headwind.

More caution from the US Federal Reserve

The minutes for the June meeting of the FOMC offered no additional hawkish elements to further roil markets which had not expected US central bank officials to predict they would be raising interest rates sooner and more aggressively than they had signalled earlier this year.

If anything, in the minutes, FOMC participants messaged caution when assessing economic progress and the odds of the Fed tapering its asset purchases, while underscoring uncertainty and the associated high bar for decision-making.

Fed Chair Jay Powell is expected to deliver a similar message to Congress this week ahead of the FOMC meeting on 25-27 July.

However, US inflation again surged in June

Data published this week showed the pace of US consumer price increases accelerated unexpectedly in June. This challenges the view within the Fed that high inflation during the US recovery will be temporary. The consumer price index rose at the fastest pace since August 2008, up by 5.4% from the previous year. This is well above the 5% rise reported in May and the 4.9% consensus forecast.

On a monthly basis, prices rose by 0.9% for the biggest single-month jump since June 2008. The core data (stripping out volatile items such as food and energy) showed US inflation rose from 3.8% YoY in May to 4.5% in June.

Price rises have so far been most significant in sectors directly affected by the coronavirus pandemic.

Source: BNP Paribas Asset Management, Bloomberg as of 13/07/2021

Travel-related expenses such as airfares have soared, while a semiconductor shortage has contributed to a jump in the prices of used cars. One-third of the rise in the CPI in June was due to a record jump in previously-owned car prices. They rose by 10.5% in June from the previous month.

Car prices have been zooming away

The report shows reopening-sensitive sectors (used cars, rental cars, vehicle insurance, lodging, airfares, and food away from home) dominating price pressures for a third straight month.

Car prices, especially used car prices, have been surging thanks to a combination of high demand from rental car companies (who let their fleets dwindle in the early months of the pandemic), buying appetite boosting stimulus cheques from the administration and severe (semiconductor) bottlenecks in car production.

Auction data for used cars suggests the worst of the price pressures should be behind us soon, and media reports from Taiwan say that waiting times for semiconductors for use in automobiles are shrinking. Taken together, that implies price pressure should ease in the months ahead.

One area where prices are rising for non-transitory reasons is in housing. House prices are hitting the roof as upper income consumers, flush with savings and benefiting from very low mortgage rates, search for property. However, as asset prices, these have no more place in the CPI than equity prices do. What matters for inflation is rents. These have begun to pick up as the labour market improves.

Temporary or time for a taper?

The Fed has continued to characterise rising inflation as ‘transitory’. The pressures should fade as Covid-19 lockdowns ease further and supply catches up with pent-up demand. At their meeting in June, Fed officials predicted that their preferred gauge of core inflation would rise by 3% this year, before falling back down to 2.1% in 2022.

This latest surprisingly high inflation report could put pressure on the Fed to consider slowing monetary stimulus by reducing its asset purchases more quickly than previously thought. Should the Fed continue to make quantitative easing (QE) asset purchases of USD 120bn per month? Chair Powell’s testimony to Congress on Thursday (and the August Jackson Hole conference) could provide opportunities for hints with regard to an upcoming taper.

US bond yields seesaw

US government bonds seesawed after the strong inflation data: yields initially rose further from the lows (at 1.25% last week) seen since the Fed’s monetary policy meeting in June and its ‘dot plot’ forecasts which had been as hawkish.

Subsequently, a weak auction of 30-year US Treasury debt jolted markets. Yields of the benchmark 10-year US Treasury rose by 0.05 percentage points on the day to 1.42%.

Keep an eye on oil prices

In the second week of March 2020, the Organisation of Petroleum Exporting Countries (known as OPEC, but expanded to ‘OPEC+’ after Russia joined its deliberations) held a disastrous meeting in which it failed to agree on production levels. As a result, the oil price plummeted.

Last week, OPEC+ again failed to reach an agreement on production increases. The result, this time, has been to push the oil price upward. Brent crude has now risen by almost 400% since last year’s low and at USD 76/barrel, it is approaching its peak from 2018.

The rise in oil prices is expected to lift inflation further globally. Moreover, the recent rebound in oil prices will continue to support inflows into energy-related stocks and the US high-yield energy sector.

Upcoming US economic data – Retail sales

Retail sales data is expected to show elevated growth in June, with the consensus expecting a 0.4% month-on-month (MoM) rebound.

The bottom line remains that retail sales are well above their pre-Covid trend. We also note that as the economy continues to reopen and normalise, services will likely comprise the bulk of the catch-up in consumer spending.

A strategy update at the ECB

In the past, the European Central Bank was generally considered to have a slightly hawkish tilt (relative to other central banks). Its mandate for price stability was interpreted as calling for inflation to remain close to, but below 2%. The ECB’s strategy review, its first since 2003, has resulted in a modest update, aimed at making its goals clearer.

From now on, the ECB will now have a symmetric inflation target; inflation that is either below or above 2% will be ‘equally undesirable’. Additionally, the ECB will tolerate a transitory period of ‘overshooting’ if a sustained period of near-zero interest rates threatens the central bank’s credibility in hitting its inflation target.

This new target arguably does away with any hawkish bias that may have contributed to the ECB consistently undershooting its inflation target since the 2008 financial crisis. ECB President Lagarde confirmed that unconventional tools such as QE would remain part of the ECB’s armoury.

This shift represents an adjustment rather than an overhaul of ECB monetary policy. For example, unlike the Fed, the ECB will not target ‘average inflation’, allowing prices to rise faster to compensate for past shortfalls. A change to include housing in its chosen measure of inflation is limited to the cost of owner-occupied housing — which usually changes only modestly year-to-year — rather than actual house prices.

Last but certainly not least, a ‘climate action plan’ aims to ensure that companies whose bonds the ECB purchases are acting in line with the goals of the Paris climate accords.

A dovish measure from China’s central bank

To counter China’s current economic slowdown, the People’s Bank of China has the reserve requirement ratio (RRR) to enhance support for the real economy and micro, small and medium-sized businesses.

The news was a positive surprise to the market given the contraction in credit and the economic slowdown over recent owing to tardy fiscal expenditure and tightening policies in the property and internet space. The central bank’s move was seen as pre-emptive. It suggests room for manoeuvre should the challenges worsen.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Andrew Craig. The post Weekly investment update – Transitory or persistent? appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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There will soon be one million seats on this popular Amtrak route

“More people are taking the train than ever before,” says Amtrak’s Executive Vice President.

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While the size of the United States makes it hard for it to compete with the inter-city train access available in places like Japan and many European countries, Amtrak trains are a very popular transportation option in certain pockets of the country — so much so that the country’s national railway company is expanding its Northeast Corridor by more than one million seats.

Related: This is what it's like to take a 19-hour train from New York to Chicago

Running from Boston all the way south to Washington, D.C., the route is one of the most popular as it passes through the most densely populated part of the country and serves as a commuter train for those who need to go between East Coast cities such as New York and Philadelphia for business.

Veronika Bondarenko captured this photo of New York’s Moynihan Train Hall. 

Veronika Bondarenko

Amtrak launches new routes, promises travelers ‘additional travel options’

Earlier this month, Amtrak announced that it was adding four additional Northeastern routes to its schedule — two more routes between New York’s Penn Station and Union Station in Washington, D.C. on the weekend, a new early-morning weekday route between New York and Philadelphia’s William H. Gray III 30th Street Station and a weekend route between Philadelphia and Boston’s South Station.

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According to Amtrak, these additions will increase Northeast Corridor’s service by 20% on the weekdays and 10% on the weekends for a total of one million additional seats when counted by how many will ride the corridor over the year.

“More people are taking the train than ever before and we’re proud to offer our customers additional travel options when they ride with us on the Northeast Regional,” Amtrak Executive Vice President and Chief Commercial Officer Eliot Hamlisch said in a statement on the new routes. “The Northeast Regional gets you where you want to go comfortably, conveniently and sustainably as you breeze past traffic on I-95 for a more enjoyable travel experience.”

Here are some of the other Amtrak changes you can expect to see

Amtrak also said that, in the 2023 financial year, the Northeast Corridor had nearly 9.2 million riders — 8% more than it had pre-pandemic and a 29% increase from 2022. The higher demand, particularly during both off-peak hours and the time when many business travelers use to get to work, is pushing Amtrak to invest into this corridor in particular.

To reach more customers, Amtrak has also made several changes to both its routes and pricing system. In the fall of 2023, it introduced a type of new “Night Owl Fare” — if traveling during very late or very early hours, one can go between cities like New York and Philadelphia or Philadelphia and Washington. D.C. for $5 to $15.

As travel on the same routes during peak hours can reach as much as $300, this was a deliberate move to reach those who have the flexibility of time and might have otherwise preferred more affordable methods of transportation such as the bus. After seeing strong uptake, Amtrak added this type of fare to more Boston routes.

The largest distances, such as the ones between Boston and New York or New York and Washington, are available at the lowest rate for $20.

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The next pandemic? It’s already here for Earth’s wildlife

Bird flu is decimating species already threatened by climate change and habitat loss.

I am a conservation biologist who studies emerging infectious diseases. When people ask me what I think the next pandemic will be I often say that we are in the midst of one – it’s just afflicting a great many species more than ours.

I am referring to the highly pathogenic strain of avian influenza H5N1 (HPAI H5N1), otherwise known as bird flu, which has killed millions of birds and unknown numbers of mammals, particularly during the past three years.

This is the strain that emerged in domestic geese in China in 1997 and quickly jumped to humans in south-east Asia with a mortality rate of around 40-50%. My research group encountered the virus when it killed a mammal, an endangered Owston’s palm civet, in a captive breeding programme in Cuc Phuong National Park Vietnam in 2005.

How these animals caught bird flu was never confirmed. Their diet is mainly earthworms, so they had not been infected by eating diseased poultry like many captive tigers in the region.

This discovery prompted us to collate all confirmed reports of fatal infection with bird flu to assess just how broad a threat to wildlife this virus might pose.

This is how a newly discovered virus in Chinese poultry came to threaten so much of the world’s biodiversity.

H5N1 originated on a Chinese poultry farm in 1997. ChameleonsEye/Shutterstock

The first signs

Until December 2005, most confirmed infections had been found in a few zoos and rescue centres in Thailand and Cambodia. Our analysis in 2006 showed that nearly half (48%) of all the different groups of birds (known to taxonomists as “orders”) contained a species in which a fatal infection of bird flu had been reported. These 13 orders comprised 84% of all bird species.

We reasoned 20 years ago that the strains of H5N1 circulating were probably highly pathogenic to all bird orders. We also showed that the list of confirmed infected species included those that were globally threatened and that important habitats, such as Vietnam’s Mekong delta, lay close to reported poultry outbreaks.

Mammals known to be susceptible to bird flu during the early 2000s included primates, rodents, pigs and rabbits. Large carnivores such as Bengal tigers and clouded leopards were reported to have been killed, as well as domestic cats.

Our 2006 paper showed the ease with which this virus crossed species barriers and suggested it might one day produce a pandemic-scale threat to global biodiversity.

Unfortunately, our warnings were correct.

A roving sickness

Two decades on, bird flu is killing species from the high Arctic to mainland Antarctica.

In the past couple of years, bird flu has spread rapidly across Europe and infiltrated North and South America, killing millions of poultry and a variety of bird and mammal species. A recent paper found that 26 countries have reported at least 48 mammal species that have died from the virus since 2020, when the latest increase in reported infections started.

Not even the ocean is safe. Since 2020, 13 species of aquatic mammal have succumbed, including American sea lions, porpoises and dolphins, often dying in their thousands in South America. A wide range of scavenging and predatory mammals that live on land are now also confirmed to be susceptible, including mountain lions, lynx, brown, black and polar bears.

The UK alone has lost over 75% of its great skuas and seen a 25% decline in northern gannets. Recent declines in sandwich terns (35%) and common terns (42%) were also largely driven by the virus.

Scientists haven’t managed to completely sequence the virus in all affected species. Research and continuous surveillance could tell us how adaptable it ultimately becomes, and whether it can jump to even more species. We know it can already infect humans – one or more genetic mutations may make it more infectious.

At the crossroads

Between January 1 2003 and December 21 2023, 882 cases of human infection with the H5N1 virus were reported from 23 countries, of which 461 (52%) were fatal.

Of these fatal cases, more than half were in Vietnam, China, Cambodia and Laos. Poultry-to-human infections were first recorded in Cambodia in December 2003. Intermittent cases were reported until 2014, followed by a gap until 2023, yielding 41 deaths from 64 cases. The subtype of H5N1 virus responsible has been detected in poultry in Cambodia since 2014. In the early 2000s, the H5N1 virus circulating had a high human mortality rate, so it is worrying that we are now starting to see people dying after contact with poultry again.

It’s not just H5 subtypes of bird flu that concern humans. The H10N1 virus was originally isolated from wild birds in South Korea, but has also been reported in samples from China and Mongolia.

Recent research found that these particular virus subtypes may be able to jump to humans after they were found to be pathogenic in laboratory mice and ferrets. The first person who was confirmed to be infected with H10N5 died in China on January 27 2024, but this patient was also suffering from seasonal flu (H3N2). They had been exposed to live poultry which also tested positive for H10N5.

Species already threatened with extinction are among those which have died due to bird flu in the past three years. The first deaths from the virus in mainland Antarctica have just been confirmed in skuas, highlighting a looming threat to penguin colonies whose eggs and chicks skuas prey on. Humboldt penguins have already been killed by the virus in Chile.

A colony of king penguins.
Remote penguin colonies are already threatened by climate change. AndreAnita/Shutterstock

How can we stem this tsunami of H5N1 and other avian influenzas? Completely overhaul poultry production on a global scale. Make farms self-sufficient in rearing eggs and chicks instead of exporting them internationally. The trend towards megafarms containing over a million birds must be stopped in its tracks.

To prevent the worst outcomes for this virus, we must revisit its primary source: the incubator of intensive poultry farms.

Diana Bell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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This is the biggest money mistake you’re making during travel

A retail expert talks of some common money mistakes travelers make on their trips.

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Travel is expensive. Despite the explosion of travel demand in the two years since the world opened up from the pandemic, survey after survey shows that financial reasons are the biggest factor keeping some from taking their desired trips.

Airfare, accommodation as well as food and entertainment during the trip have all outpaced inflation over the last four years.

Related: This is why we're still spending an insane amount of money on travel

But while there are multiple tricks and “travel hacks” for finding cheaper plane tickets and accommodation, the biggest financial mistake that leads to blown travel budgets is much smaller and more insidious.

A traveler watches a plane takeoff at an airport gate.

Jeshoots on Unsplash

This is what you should (and shouldn’t) spend your money on while abroad

“When it comes to traveling, it's hard to resist buying items so you can have a piece of that memory at home,” Kristen Gall, a retail expert who heads the financial planning section at points-back platform Rakuten, told Travel + Leisure in an interview. “However, it's important to remember that you don't need every souvenir that catches your eye.”

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According to Gall, souvenirs not only have a tendency to add up in price but also weight which can in turn require one to pay for extra weight or even another suitcase at the airport — over the last two months, airlines like Delta  (DAL) , American Airlines  (AAL)  and JetBlue Airways  (JBLU)  have all followed each other in increasing baggage prices to in some cases as much as $60 for a first bag and $100 for a second one.

While such extras may not seem like a lot compared to the thousands one might have spent on the hotel and ticket, they all have what is sometimes known as a “coffee” or “takeout effect” in which small expenses can lead one to overspend by a large amount.

‘Save up for one special thing rather than a bunch of trinkets…’

“When traveling abroad, I recommend only purchasing items that you can't get back at home, or that are small enough to not impact your luggage weight,” Gall said. “If you’re set on bringing home a souvenir, save up for one special thing, rather than wasting your money on a bunch of trinkets you may not think twice about once you return home.”

Along with the immediate costs, there is also the risk of purchasing things that go to waste when returning home from an international vacation. Alcohol is subject to airlines’ liquid rules while certain types of foods, particularly meat and other animal products, can be confiscated by customs. 

While one incident of losing an expensive bottle of liquor or cheese brought back from a country like France will often make travelers forever careful, those who travel internationally less frequently will often be unaware of specific rules and be forced to part with something they spent money on at the airport.

“It's important to keep in mind that you're going to have to travel back with everything you purchased,” Gall continued. “[…] Be careful when buying food or wine, as it may not make it through customs. Foods like chocolate are typically fine, but items like meat and produce are likely prohibited to come back into the country.

Related: Veteran fund manager picks favorite stocks for 2024

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